I’m looking to compare the benefits and drawbacks of buying auto notes versus originating them. What factors—such as interest rates, underwriting standards, or market conditions—should be considered when making this decision? Any insights or experiences related to these approaches would be appreciated.
Both approaches have merits and pitfalls. Buying auto notes means stepping in with a diversified portfolio of existing paper, much of which has already been rigorously underwritten. That can reduce risk if you source quality notes, but it also means accepting someone else’s credit grading and servicing practices. On the other hand, originating your own auto notes lets you control underwriting standards and potentially capture more margin, assuming you’ve got a strong process and team in place. However, that method demands deep involvement with risk-control and ongoing monitoring. In practice, success depends on your capabilities—if you’re set up for detailed originations, you could outperform, otherwise sticking with buying established notes can be safer.
I’ve been mulling over this too, and honestly, it all boils down to where you see more control in the process. When you buy auto notes, you’re inheriting someone else’s work – which can be a win if those notes are solid – but you’re also bound by their underwriting and servicing quirks. On the flip side, originating your own notes gives you the chance to set the guidelines exactly how you want, which can sometimes mean a better return when everything runs smoothly. But I imagine it also means more hands-on risk management. I guess it really comes down to your comfort level with either trusting an outside process or rolling your sleeves up and diving into the details yourself. Not really a black-and-white decision, more like balancing pros and cons based on what resources and expertise you have.
I’ve been tracking some of these trends too, and one thing that stands out is how much the playing field has shifted with current market dynamics. In my experience, if you’re leaning towards buying auto notes, you’re often benefiting from a portfolio that already reflects past underwriting standards and risk assessments – sort of like buying quality used stock. But these portfolios come with legacy assumptions that might not always align with today’s tighter lending standards and regulatory shifts.
On the flip side, originating notes gives you that fresh start. You’re designing the underwriting process in real time, which can be advantageous if you’re aiming for higher margins and adaptability in a climate of rising interest rates and shifting borrower profiles. That said, it’s also more hands-on and might expose you to risks if your internal processes aren’t as robust as anticipated. I’ve noticed that some new players in the market are combining both strategies—buying quality notes while selectively originating deals where they can exercise tighter control over risk.
It really comes down to what fits your operational strengths. If you have a solid infrastructure and a team that can constantly monitor and fine-tune origination standards, going in-house might be the better play. If not, purchasing notes from seasoned players who have already worked out many of the kinks could offer more stability. Just my two cents from following the space!